MACROECONOMIC OBJECTIVES

MACROECONOMIC OBJECTIVES

• ECONOMIC GROWTH
• FULL EMPLOYEMENT
• PRICE STABILITY
• BALANCE OF PAYMENTS

UKS OBJECTIVES

• Achieve economic growth and improve standards of living and levels of economic welfare
• Create and maintain full employment of low unemployment
• Limit or control inflation, or to achieve some measure of price stability
• Attain a satisfactory balance of payments, usually defined as the avoidance of an external deficit which might create an exchange rate crisis

ECONOMIC GROWTH

• Short run growth, which occurs when there are unemployed resources or 'slack' in the economy, is when there is a movement from a point inside the economy's production possibility frontier to a point on the frontier
• Also called economic recovery
• Long run growth results from an outward movement of the production possibility frontier

FULL EMPLOYEMENT

• Beveridge definition - occurring when unemployment falls to 3% of the labour force
• Free market economists definition - where the number of workers willing to work = the number of workers whom employers wish to hire
• There will always be some unemployment, as the economy is constantly changing, with some jobs disappearing while new jobs are created
• Measured by the CLAIMANT COUNT or LABOUR FORCE SURVERY
• LFS is favoured

PRICE STABILITY

• Inflation is a general rise in average prices over time, across the economy
• Absolute price stability requires a zero annual rate of inflation
• In the UK controlling inflation means keeping it low - at about 2%
• Deflation is negative inflation
• Disinflation is when the inflation rate is falling but is still positive
• Measuring inflation - CONSUMER PRICE INDEX and RETAIL PRICE INDEX

BALANCE OF PAYMENTS

• Measures all currency flow into and out of an economy
• The current account of balance of payments measures the value of exports and the value of imports
• Together they make up the balance of trade
• If the money value of imports exceeds the money value of exports, there's a balance of trade deficit
• The other way round there's a balance of trade surplus
• A 'satisfactory' balance of payments is normally viewed as a situation in which the current account is in equilibrium, or when there is a small surplus or a small but sustainable deficit

OTHER MACROECONOMIC OBJS

• Balancing the budget
• Achieving a more equitable or fairer distribution of income
• Since the 2008/09 recession, the objective of balancing or at least reducing the governments budget deficit has become a very important macroeconomic objective

POLICY CONFLICTS

• Hard - if not impossible - to hit all macroeconomic objectives
• A trade-off between policy objectives means that although it may be impossible to achieve two desirable objectives at the same time, policy makers may be able to choose an acceptable combination lying between the extremes
• A trade-off exists when two or more desirable objectives are mutually exclusive
• Conflicts;
• Between internal policy objectives of full employment and growth and the external objective of achieving a satisfactory balance of payments
• Between achieving full employment and controlling inflation
• Between increasing the rate of economic growth and achieving a more equal distribution of income and wealth
• Between higher living standards now and higher living standards in the future